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ING posts strong 1-Q performance (May 12, 2005)


May 12, 2005   by Canadian Underwriter


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ING Canada Inc. (TSX: IIC.LV) notched up a return on equity of 28.9% for the first quarter of this year with net income soaring by 38% to $158.5 million compared with the $115.1 million disclosed for the same period in 2004. Earnings clocked in at $1.19 a share for the latest reporting period, reflecting modest decline on last year’s comparable quarter result of $1.23 a share. ING notes that the drop in earnings a share is due to the increased number of shares outstanding following the company’s initial paper offering (IPO) of December last year which saw a total of 40.1 million shares issued at a value of $987.7 million.
ING’s strong earnings performance for 2005’s first quarter is largely due to a significantly high underwriting profit of $114.9 million versus the $43.4 million reported for the same period last year. Much of the underwriting gain was made on personal insurance, a company statement says, with the auto line producing the most benefit. "All lines of business continued to perform well during the quarter. However, the improvement was driven by auto insurance. Reduced claims frequencies, favorable reserve developments as well as improvement in the year over year results of the Facility Association contributed positively to our results," says ING Canada president Claude Dussault. Personal insurance accounts for $80.4 million (about 70%) of ING’s total underwriting profit, with commercial insurance generating $34.5 million.
Overall claims costs for the first quarter of 2005 rose by 4.2% year-on-year to $566.8 million (2004 1-Q: $543.6 million) which produced a loss ratio for the latest reporting period of 58.5% (2004 1-Q: 66.4%). The insurer’s combined ratio for the first quarter of this year clocked in at 88.1%, showing a 6.6 percentage point improvement on 2004’s first quarter ratio of 94.7%.
The company’s total net investment income for the first quarter of this year fell by 11% year-on-year to $119.1 million (2004 1-Q: $134.2 million) due to a dramatic reduction in realized gains of $42.7 million (2004 1-Q: $72 million). Investment income increased by 23% to reach $76.4 million from the $62.2 million reported for 2004’a first quarter.
ING saw direct written premiums for the first quarter of this year rise by 13% to $821.9 million compared with the $727.8 million disclosed for the same period in 2004. A statement says that the growth in direct written premiums is largely due to the acquisition of Alliance, which accounts for about $135 million of the increase. Net earned premiums for the latest reporting period were lifted by 18.3% year-on-year to $968 million (2004 1-Q: $817.7 million) while net written premiums grew by 11.5% to $777.4 million (2004 1-Q: $880.2 million). Personal lines accounts for 70% of total earned premiums at $675.8 million with commercial lines generating $292.2 million in premiums.
An ING statement notes that the property and casualty insurance will continue to be impacted by regulatory changes to the auto line. Sustainability of the regulative cost containment reform measures introduced, as well as ongoing rate reductions, will be key influences on the insurer’s performance in the short-term, the statement observes. And, based on the favorable performance of the commercial insurance sector over the past three years, and the overall strengthening of the insurance industry’s capital reserves, ING expects that heightened market competition will negatively influence the future financial prospects of insurers. "the industry’s growth rates for the next 12 to 24 months are likely to be below historical levels. We also expect that the underwriting results will not remain at such favorable levels."